" ...a party should not too readily be found to have refused to perform the agreement by contentious observations in the course of discussions ...'."

"... it is a case of a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear ... In these circumstances the court is not justified in drawing an inference that the appellant intended not to perform the contract according to its terms or that it repudiated the contract".

In Ross T Smyth & Co Ltd v T D Bailey Son & Co [1940] 3 All ER 60 at 71-2, Lord Wright said:

" ... repudiation of a contract is a serious matter, not to be lightly found or inferred ... mere honest misapprehension, especially if open to correction, will not justify a charge of repudiation".

See also Woodar Investment Development Ltd v Wimpey UK Ltd [1980] UKHL 11; [1980] 1 WLR 277 (HL) and Dainford Ltd v Smith [1985] HCA 23; (1985) 155 CLR 342 at 350, 365-6. We conclude therefore that even if Roadshow were in breach, CEL/Vision were not entitled to rescind for breach on 6 December.

The decision in this appeal does not require a comprehensive analysis of the effect of a breach on a party's right to rescind. This is not a case where the party attempting to rescind was in breach of a condition or had otherwise repudiated. Compare Morris v Barron & Co [1918] AC 1 at 9; Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 632-3 per Priestley JA; and The Simona [1989] AC 788. Timely payment by Roadshow was not a condition precedent to be performed before CEL/Vision became bound to perform the obligations repudiated by the sale and was independent of those obligations. Compare Foran v Wight [1989] HCA 51; (1989) 168 CLR 385.

As a general rule, a party in breach of a non essential term is not prevented from rescinding for a fundamental breach or repudiation by the other party. See Carter, "Breach of Contract", 2nd Ed, 1991, at 347, and Halsbury's Laws of Australia, Vol 6, "Contract", 1992, para 110-9520, by the same author. The question is whether there is an exception or qualification to this general rule which prevented Roadshow from rescinding. Such an exception or qualification might exist if there were a causal relationship between the breaches of non essential terms by the party attempting to rescind, and the fundamental breach relied upon. See Nina's Bar Bistro Pty Ltd v MBE Corporation (Sydney) Pty Ltd [1984] 3 NSWLR 613 at 614, 620-1, 632; and compare Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 at 440-2.

The Receivers were appointed to Comcorp Australia Ltd and its subsidiaries including CEL/Vision on 16 September. The group was evidently insolvent and the Receivers made no attempt to trade CEL/Vision out of their financial difficulties. The supply of products to Roadshow declined dramatically after the appointment of the Receivers, as can be seen from the amounts due to CEL/Vision for deliveries each month from August onwards (1544):

From early October onwards, the Receivers experienced increasing difficulties with their producers and licensors in relation to the supply of existing and new titles. On 7 October the Receivers wrote to Roadshow in relation to the titles due for release that month, advising that one licensor had already terminated and negotiations had broken down with another. On the same day, Mr Campbell from the Receivers' office told Mr Bongiorno that two other licensors, Thunderbird and Castle, had withdrawn and said, "don't think we will be in the business for long". On 8 October he informed Mr Bongiorno that Yorkshire TV had told the Receivers to cease distribution immediately, and on 11 October, Mr Bongiorno was informed of the same request from Roc Vale. This process continued relentlessly until the sale to Sunhost.

During late September/early October the Receivers initiated moves to sell the assets of CEL/Vision to Roadshow. They also invited expressions of interest from other potential purchasers, although Roadshow were not aware of this at the time. On 8 November the Receivers had an approach from Sunhost, and the same day they informed Roadshow they would not be adopting the Distribution Agreement.

Readiness and willingness to perform imports capacity to do so. See De Medina v Norman [1842] EngR 533; (1842) 9 M & W 820 at 827 [1842] EngR 533; (152 ER 347 at 350), and Foran v Wight at 397, 424, 451. By early October at the latest, CEL/Vision were no longer ready and willing to perform their obligations under the agreement until 31 December 1994 when they could terminate without breach. In the words of Lord Sumner in British and Benningtons Ltd v North Western Cachar Tea Co [1923] AC 48 at 71-2, referred to by Dixon CJ in Rawson v Hobbs [1961] HCA 72; (1961) 107 CLR 466 at 481, CEL/Vision had "become wholly and finally disabled from performing essential terms of the contract". They had "a substantial incapacity" which would prevent them "doing in the future what the contract requires" and had "neither the means nor the intention of performing". See also Foran v Wight at 404-6, 409, 424-5 and 453.

The incapacity of a party to perform essential terms of a contract may involve an anticipatory breach. See Universal Cargo Carriers Corporation v Citati [1957] 2 QB 401 at 436 per Devlin J, Foran v Wight at 406, 423-4. "The injured party is allowed to anticipate an inevitable breach" per Devlin J above at 438.

It is arguable that Roadshow might have rescinded before 6 December relying on CEL/Vision's incapacity due to insolvency. However this could have imposed a heavy onus of proof on Roadshow and it wisely elected to wait.

A party in breach of non essential terms who has not repudiated may rescind for fundamental breach. See Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7; [1962] 2 QB 26; State Trading Corporation of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 286-7. A party in breach of an essential but independent term may also rescind for fundamental breach. See State Trading Corporation of India Ltd v M Golodetz Ltd at 285-7. Compare Geraldton Building Co Pty Ltd v Christmas Island Resort Pty Ltd (1992) 11 WAR 40 at 50-1. Roadshow, we consider, was not, by reason of its conduct, unable to terminate on the ground of CEL/Vision's repudiation.

Thus far we have considered the matter on the assumption that Roadshow itself was in breach. However, at a later stage in these reasons we conclude that Roadshow's conduct after 29 October in asserting and exercising a right to withhold payment of monies otherwise due to CEL/Vision was justified by its right of equitable set-off.

Equitable set-off is a substantive defence. See Derham, "Set-Off", 1996, 56-65. As Goff LJ said in Federal Commerce & Navigation Co Ltd v Molena Alpha Inc [1978] QB 927 at 982, a defence of equitable set-off may be set up "not merely as a means of preventing ... judgment, or, at any rate, execution, but also as an immediate answer to ... liability to pay". This must be correct because an equitable set-off impeaches the title of the other party to the legal demand against which it is asserted. When "the circumstances which support an equitable set-off exist, it is unconscionable for the creditor to regard the debtor as being indebted" (Derham at 60). The debtor can therefore claim that the payment demanded was never due. See Tomlinson v Cut Price Deli Pty Ltd [1992] FCA 555; (1992) 38 FCR 490 at 494-5 per Drummond J and the cases there cited.

Roadshow was therefore entitled in equity to withhold the payments otherwise due on 31 October and 30 November and for that additional reason its conduct did not prevent it from rescinding the contract for fundamental breach.

On 6 December Roadshow owed CEL/Vision $1,335,883.54, although some of this was not yet payable. When sued, Roadshow pleaded its liquidated and unliquidated claims against CEL/Vision as defences. It did not plead any cross claim, no doubt because the secured creditors had priority. A set-off of $111,352 was established and judgment was entered against Roadshow for $1,224,531.54. The appeal involved its claim to set-off other liquidated and unliquidated claims.

Unliquidated damages could not be set-off at law under the Statutes of Set-off (Derham 12-13), but legal set-off lapsed in this State with the repeal of those Statutes by the Imperial Acts Application Act 1969 (Meagher, Gummow and Lehane, 3rd Ed, 1993, at 812, Derham, "Recent Issues in Relation to Set-Off" (1994) 68 ALJ 331 at 332). Moreover at law set-off was only available in respect of debts which were due and payable. (Derham 10-13.) Equitable set-off however has been held to be available for unliquidated claims.

The floating charge over the assets and undertakings of CEL/Vision crystallised on or before the appointment of the Receivers. Debts owed to those companies became bound by a fixed charge which operated as a completed equitable assignment to the secured creditors. See In re ELS Ltd [1995] Ch 11. Debts coming into existence after the appointment were also subject to the fixed charge. See Ferrier v Bottomer [1972] HCA 11; (1972) 126 CLR 597.

If there had been a legal assignment of Roadshow's debt to the secured creditors under s 12 of the Conveyancing Act, the assignees would have taken subject to the "equities" between CEL/Vision and Roadshow. These include cross-claims for unliquidated damages arising out of the contract which gave rise to the debt. In Young v Kitchin (1878) 3 Ex D 127 a claim for unliquidated damages for breach of a building contract was set-off against the legal assignee of a debt due under that contract. This decision was approved in Government of Newfoundland v Newfoundland Railway Co (1888) 13 App Cas 199 at 213 where Lord Hobhouse said:

"Unliquidated damages may now be set-off as between the original parties, and also against an assignee if flowing out of and inseparably connected with the dealings and transactions which also gave rise to the subject of the assignment".

Some aspects of the advice of the Privy Council in that case were doubted and explained by Dixon J in McDonnell & East Ltd v McGregor [1936] HCA 28; (1936) 56 CLR 50 at 59-60, but he did not question the principle that unliquidated cross-claims were available against assignees. The merits are clear. As Lord Hobhouse said in the Newfoundland case at 212:

"It would be a lamentable thing if it were found to be the law that a party to a contract may assign a portion of it, perhaps a beneficial portion, so that the assignee shall take the benefit, wholly discharged of any counter-claim by the other party in respect of the rest of the contract, which may be burdensome".

See also Stoddart v Union Trust Ltd [1912] 1 KB 181 at 189, 191, 193; Parsons v Sovereign Bank of Canada [1913] AC 160 at 166; Tooth v Brisbane City Council [1928] HCA 20; (1928) 41 CLR 212 at 223-4, 227; Clyne v Deputy Commissioner of Taxation [1981] HCA 40; (1981) 150 CLR 1 at 20-22 per Mason J; and James v Commonwealth Bank of Australia [1992] FCA 420; (1992) 37 FCR 445 at 460-462 per Gummow J. This analysis is supported by Meagher, Gummow and Lehane at 207, 821-2, and by Spry, "Equitable Set-Offs" (1969) 43 ALJ 265 at 269. Derham offers a different analysis in "Recent Issues in Relation to Set-Off" (1994) 68 ALJ 331 at 334-7, but his argument is that the principles established in these cases are not confined to equitable set-off against an assignee.

The wider scope of equitable set-off need not be considered in this appeal. Compare Lord v Direct Acceptance Corporation Ltd (1993) 32 NSWLR 362 at 367 and Walker v Secretary Department of Social Security [1995] FCA 1136; (1995) 56 FCR 354.

The "equities" available against a legal assignee are those which were available against an equitable assignee before the Judicature Act 1838 . See Meagher, Gummow and Lehane at 715. The appellant therefore is prima facie entitled to set-off its claims against the debts on which it was sued to judgment. However these proceedings were brought by the Receivers in the names of CEL/Vision, and it is necessary to consider whether this makes any difference.

Rights of set-off against Receivers appointed by debenture holders out of court were considered in Biggerstaff v Rowatt's Wharf Ltd [1896] 2 Ch 93; N W Robbie & Co Ltd v Witney Warehouse Co Ltd [1963] 1 WLR 1324; Inglis Electrix Pty Ltd v Healing (Sales) Pty Ltd (1967) 69 SR (NSW) 311 at 327-8; Rother Iron Works Ltd v Canterbury Precision Engineers Ltd [1974] QB 1; George Barker (Transport) Ltd v Eynon [1974] 1 WLR 462; and Business Computers Ltd v Anglo-African Leasing Ltd [1977] 1 WLR 578. These cases were decided by the application of the principles governing rights of set-off against equitable assignees and establish that such a receiver is in the same position as the secured creditor who appointed him. These cases involved claims to set-off debts, but the principles apply to unliquidated claims arising out of the same contract. Thus in Rother Iron Works Ltd v Canterbury Precision Engineers Ltd at 6, Russell LJ said:

"It is true that the right of the plaintiff to sue for the debt due from the defendant was embraced, when it arose, by the debenture charge. But if this was because the chose in action ... became subject to the charge on the appointment of the receiver, then the debenture holder could not be in a better position to assert those rights than ... the assignor plaintiff".

Similarly in George Barker (Transport) Ltd v Eynon [1974] 1 WLR 462, which involved a claim to a lien against a receiver, Davies LJ said at 470:

"... the debenture holders could assert their position as assignees of the company's property and contractual rights ... only by themselves recognising and giving effect to the pre-appointment contractual rights of the plaintiff".

"The debenture holders were therefore in no different position from any other assignee to whom the benefit of the contract might have been assigned. I find it impossible to see how such an assignee could take the benefit of the contract without at the same time accepting the liabilities arising thereunder. He could not be in any better position ... than the company itself ... ".

Parsons v Sovereign Bank of Canada [1913] AC 160 involved a receiver appointed by the court in a debenture holder's action, but it was followed in N W Robbie & Co Ltd v Witney Warehouse Co Ltd and George Barker (Transport) Ltd v Eynon (supra), where the Receivers had been appointed out of court. In any event the bank's charge must have crystallised on or before the appointment. The debtor, which operated a paper mill, had entered into supply contracts with the appellant which had two to three years to run. The appellant submitted orders to the Receivers and for a time they were executed. The Receivers then repudiated the contracts and assigned the debts due from the appellant to the bank. When the bank sued, the appellant claimed to set-off its damages for breach of the supply contracts and its right to do so was upheld by the Privy Council. Lord Haldane said at 166:

"The answer ... depends upon whether the appellants are able to establish that the goods delivered to them were delivered under the old contracts with the company, and not under new contracts made with the Receivers and managers; ... The Ontario statute ... enables ... assignments to be made, but only subject to equities. No doubt a claim for damages for breach would be such an equity if it arose under the same contract, and the point in the case is therefore whether the appellants took the deliveries in respect of which the sums assigned were claimed under new and single contracts made with the Receivers and managers, as to which there could be no such question of breach, or under the original contracts ... which had undoubtedly been repudiated, and for breach of which the company was responsible".

The Privy Council found that the deliveries had been made under the original contracts and Lord Haldane concluded at 171-2:

"As the result a right arose to counter-claim against the company damages for breach, and neither the company nor its assignees could sue for the price of the paper delivered excepting subject to this counter-claim ...".

Since there is no distinction in this context between a receiver appointed by the court, and one appointed out of court, the decision establishes that the appellant is entitled to set-off claims for unliquidated damages against the debts owed to the respondents.

The principal claim pressed by the appellant was based on its rights under cl 10.4 to the minimum distribution fee. Mr Rayment QC's primary submission was that this was an accrued right which survived rescission, but if not the appellant had a claim to unliquidated damages for loss of its bargain. Clause 10.4 (as amended) provided that if the distribution fees earned by the appellant for the period to 30 September 1994 were less than $1.3 million, the deficiency would be recoverable firstly from amounts then due to CEL/Vision, and any unrecouped balance would be paid by CEL/Vision within 30 days.

If CEL/Vision had remained solvent, and contractual performance had continued until 30 September 1994, any shortfall in the minimum distribution fee would have become payable as a debt on 31 October, and no question of damages would have arisen. However as at 6 December 1993 this debt was contingent and payable in the future. The effect on Roadshow's right to recover this debt depends on principles formulated by Dixon J. In McDonald v Dennys Lascelles Ltd [1933] HCA 25; (1933) 48 CLR 457 at 476-7, he said:

"When a party to a simple contract ... elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its breach alike continue unaffected".

The question was again dealt with in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd [1936] HCA 6; (1936) 54 CLR 361 at 379-80, a case which involved termination without breach under an express term, and its effect on an obligation to make a payment in the nature of commission. The analysis by Dixon and Evatt JJ is also relevant where a contract is rescinded for breach. Their Honours said, at 379-80:

"In general the termination of an executory agreement out of the performance of which pecuniary demands may arise imports that, just as on the one side no further acts of performance can be required, so, on the other side, no liability can be brought into existence if it depends upon a further act of performance. If the title to rights consists of vestitive facts which would result from the further execution of the contract but which have not been brought about before the agreement terminates, the rights cannot arise. But if all the facts have occurred which entitle one party to such a right as a debt, ... the fact that the right to payment is future or is contingent upon some event, not involving further performance of the contract, does not prevent it maturing into an immediately enforceable obligation".

See also State Trading Corporation of India Ltd v M Golodetz Ltd [1989] 2 Lloyd's Rep 277 at 286-7 (price of goods recoverable after rescission) and Bank of Boston Connecticut v European Grain & Shipping Ltd [1989] AC 1056 at 1097-9 (pre-payable freight recoverable after rescission).

The question is whether Roadshow's rights under cl 10.4 were dependent on "further acts of performance" by it. In our judgment Roadshow's rights under this clause arose when the agreement was entered into. If thereafter CEL/Vision had refused to supply stock, and prevented Roadshow from earning distribution fees, the minimum fee would, in due course, have become payable by CEL/Vision.

The debt was contingent on Roadshow remaining ready and willing to earn further distribution fees, and it could not recover the minimum fee, in whole or in part, if it refused or failed to earn distribution fees which would reduce or satisfy the obligation of CEL/Vision under cl 10.4. A person cannot take advantage of the non fulfilment of a condition, the performance of which he or she has hindered. See Panamena Europea Limitade Navigacion v Frederick Leyland & Co Ltd [1947] AC 428 at 436. However, no such question arises because Roadshow remained ready and willing to perform its obligations until CEL/Vision became wholly and finally disabled from performing their obligations.

Future performance by both parties could reduce the amount payable under cl 10.4, but at any point of time Roadshow was contingently entitled to the unearned balance. Rescission deprived CEL/Vision of the opportunity of reducing their contingent liability which accrued when the agreement was made. Roadshow were not under a positive obligation to earn the balance of the fee, but under a negative obligation not to prevent CEL/Vision from reducing it, and for this purpose it had to remain ready and willing to perform its obligations under the agreement. Reductions in the fee contingently payable were dependent on further acts of performance, but liability for the amount contingently payable was not.

In our judgment therefore the right to the minimum distribution fee under cl 10.4 accrued when the agreement was made, and Roadshow remained entitled to the unearned balance to 30 September 1994 of $843,389 as a debt. However the due date for payment was 31 October 1994 and the liability was not accelerated. See Westralian Farmers at 380.

Clause 2.2 provided that "subject to the provisions hereinafter contained for earlier termination this agreement shall continue in operation until 30 June 1996". The provision referred to was cl 15.4 which provided:

"The parties acknowledge that, at any time after 30 June 1994, this agreement shall be capable of termination by the mutual agreement of all parties but, unless the following notice period is waived by the mutual consent of all parties, any such termination shall only be accomplished by a party wishing to terminate this agreement giving six months prior notice in writing to the other party or parties of that desire and any such notice may be given at any time on or after 30 June 1994".

This clause contains provisions which appear to contradict each other and, on one view, the right of termination could only be exercised by consent. A literal construction would make the clause ineffective and the Court is free to adopt another construction to avoid absurdity or repugnancy. In our judgment the second limb confers a unilateral power of termination on either party on 6 months' notice so that the agreement could have been terminated without breach on or after 31 December 1994. Accordingly Roadshow is only entitled to a further minimum distribution fee of $250,000 up to 31 December 1994 (see cl 16.3) which was not payable until 31 January 1995.

It will be necessary to consider in due course whether Roadshow is entitled to an equitable set-off in respect of sums which were not yet payable when CEL/Vision commenced proceedings on 31 May 1994.

Roadshow also had a claim under cl 10.3 to an additional distribution fee of $75,000 or for damages for loss of this right. The clause provided, so far as relevant, that if the returns referable to stock delivered by Roadshow to retailers during the period to 30 June 1994 exceeded 20% of the gross unit volume delivered during that period, an additional distribution fee of $75,000 would be payable.

The gross sales by Roadshow under the agreement were $6,143,866. The gross sales by Roadshow under the Sunhost agreement, which expired on 28 February 1994, were $448,000. The figure of $6,143,866 appears to be the relevant figure. Returns during the same period totalled $2,094,240 but later returns totalled a further $399,875. The nett sales under the Sunhost agreement may be relevant to mitigation but on either view the ratio of returns was well over 20%.

The evidence therefore establishes that on 6 December Roadshow was presumptively entitled to this additional distribution fee. However its rights had not become unconditional because further deliveries and lower returns prior to 30 June 1994 could have reduced the ratio below 20%, or even below 12%, so that no additional distribution fee would become payable. The figures as at 6 December suggest that the fee was then due, although the right to payment was future and contingent. However the legal rights of the parties would have been the same if the agreement had been repudiated after only 10 units had been delivered if 3 were later returned, and it would not seem right that $75,000 should be payable in such a case.

The fee was clearly intended to reimburse Roadshow for additional costs it would incur in handling excessive returns. The better view is that Roadshow had to earn the fee by handling returns over the full period, and thus further acts of performance were required. In our view the rights of Roadshow under cl 10.3 sound only in damages.

The prima facie measure is the present value on 6 December 1993 of the $75,000 payable on 31 July 1994, which had presumptively accrued before rescission. CEL/Vision may have avoided some or all of this liability after 6 December by delivering a high volume of Products which attracted a low level of returns, but this would also have been very profitable business for Roadshow. Rescission put an end to this chance. The amount payable under cl 10.3 was independent of any additional distribution fee payable under cl 10.4, and Roadshow's rights under the latter clause are not presently relevant. In view of the level of returns as at 6 December (34%), and as at 28 February (38%), no reason appears for further reducing the damages.

Roadshow's remaining claim was for a credit for returned stock. Stock was delivered by Roadshow to retailers (Sub-Agents) on consignment (sale or return). (See cl 1 definition of Sub-Agents and cl 7 Title and Risk.) The agreement dealt with returns in the definition of "Nett Sales Price" in cl 1, which allowed credits for returns to be deducted from monies otherwise payable to CEL/Vision. See also cl 9.1.

Roadshow claimed to set-off $213,499 for such returns in addition to any other returns allowed for in calculating the debt due to CEL/Vision. The trial Judge rejected this claim because the sale agreement between CEL/Vision and Sunhost provided that returns after 3 December were for the account of Sunhost. Roadshow entered into an agreement with Sunhost which covered the period from 6 December to 28 February 1994. Clause 3 provided:

"All returns of CEL Video (Sunhost) stock both before and after the purchase of CEL/Vision by CEL Video will be credited to the CEL Video account. Any payments to CEL Video will be nett of a 17.5% returns allowance ... ".

Clause 3.5 of the agreement between CEL/Vision and Sunhost provided:

"In the ordinary course of conduct of the Business video cassettes are sold on a `sale or return' basis. The Purchaser agrees to assume the Vendors' liability in relation to such stock returns ...".

On 4 December a stocktake was held of the former CEL/Vision stock held by Roadshow. On 6 December the Receivers wrote to Roadshow stating:

"We have been advised that Sunhost Pty Ltd has entered into a distribution agreement with Roadshow for the distribution of its video cassettes stored in the Roadshow warehouse. Therefore all sales, returns and direction for stock movements should now be referred to the purchaser".

The Receivers accepted responsibility to Roadshow for rebates and claims for credit from retailers from the commencement of the Receivership to 3 December, but as shown by their letter of 6 December, they sought to transfer responsibility to Sunhost for claims for credit accruing after 3 December. Roadshow did not release any rights it had against CEL/Vision, there was no express novation, and it was not bound by the sale agreement with Sunhost. However its contract with Sunhost entitled it to credits from that company for any returns after 3 December. Mr Rayment submitted that cl 3 of the Roadshow/Sunhost contract did not cover returns in respect of CEL/Vision stock sold, i.e. delivered on sale or return, prior to 3 December. However the sale to Sunhost included the CEL/Vision stock, which was defined by cl 1 as meaning "all the stock-in-trade of the Business owned by the vendor at the completion date ... " and this included consignment stock held by retailers. Any such stock returned later would be owned by Sunhost.

Since cl 3 of the Roadshow/Sunhost contract did not cover returns prior to 3 December, the opening words "all returns of (Sunhost) stock before or after the purchase of CEL/Vision by (Sunhost)" must refer to stock "sold" to retailers before and after the sale to Sunhost. Since Sunhost became the owner of consignment stock sold to retailers before 3 December, and on hand on that day, Roadshow were entitled under their contract with Sunhost to credit for all stock returned by retailers after 3 December, whenever it was delivered to the retailers.

The Judge found that "the vast majority of returns" occurred within 90 days of delivery on sale or return to the retailer. Mr Bongiorno, the Business Affairs Manager of Roadshow, said in evidence that all returns between 6 December and 31 March were credited to Roadshow in its account with Sunhost regardless of when the stock had originally been sold, and that Roadshow were not out-of-pocket for such returns.

Roadshow accepted substantial further returns during April and May for which it could not obtain credit from either Sunhost or CEL/Vision. According to Mr Bongiorno this stock, to the value of at least $213,499, must have been delivered to retailers before 3 December 1993. The Judge considered the evidence tendered to prove this entitlement was "far from satisfactory", principally because no attempt had been made at the time to distinguish Sunhost stock in Roadshow's warehouse on 3 December or delivered later from stock returned by retailers which had been delivered before 3 December.

The Judge found that, on the probabilities, all returns of CEL/Vision stock delivered before 3 December had been received during the 114 days between 6 December and 31 March and that Roadshow had been compensated for these by Sunhost. On this basis, returns after 31 March were not the responsibility of CEL/Vision, and Roadshow were not entitled to make a second claim on CEL/Vision for the returns prior to 31 March. There was ample evidence to support these conclusions, and in our view they cannot be disturbed.

Roadshow therefore established liquidated cross-claims for $843,389 and $250,000, payable on 31 October 1994 and 31 January 1995 respectively, and a claim for unliquidated damages for loss of its rights under cl 10.3. None of these claims were payable on 31 May 1994 when proceedings were commenced by CEL/Vision. The availability of equitable set-off for debts which have not yet become payable does not appear to have been considered in earlier cases.

The causes of action for unliquidated damages available as equitable set-offs in Young v Kitchin, Government of Newfoundland v Newfoundland Railway Co, and Parsons v Sovereign Bank of Canada had accrued, but at the date of suit the defendants had not recovered judgments on their cross-claims. Equitable set-off in those cases involved a restraint on the enforcement of the plaintiffs' debts until the defendants' cross-claims were liquidated by verdict or judgment.

This has been the situation in other cases of equitable set-off. Thus in Piggott v Williams [1821] EngR 279; (1821) 6 Madd 95 (56 ER 1027), Leach VC held that a client had a clear title to restrain his solicitor from enforcing a mortgage for costs until the client's action for damages for negligence had been tried at law. Similarly, in Beasley v Darcy (1800) 2 Sch & Lef 403 (conveniently extracted in British Anzani (Felixstowe) Ltd v International Marine Management (UK) Ltd [1980] QB 137 at 149-151) a tenant was entitled in equity to set-off unliquidated damages for the landlord's breach of covenant against his liability for rent. An interlocutory injunction was granted to restrain the ejectment action against the tenant on terms that the rent was paid into court.

In Rawson v Samuel (1841) Cr & Ph 161 (41 ER 451) at 178 (458), Lord Cottenham LC stated the basic rule that "equitable set-off exists in cases where the party seeking the benefit of it can shew some equitable ground for being protected against his adversary's demand". He continued, at 179 (458):

"Is there then any equity in preventing a party who has recovered damages at law from receiving them because he may be found to be indebted, upon the balance of an unsettled account, to the party against whom the damages have been recovered? Suppose the balance should be found to be due to the plaintiff at law, what compensation can be made to him for the injury he must have sustained by the delay? The jury assess the damages as the compensation due at the time of their verdict. Their verdict may be no compensation for the additional injury which the delay in payment may occasion. What equity have the plaintiffs in the suit for an account to be protected against the damages awarded against them? If they have no such equity, there can be no good ground for the injunction".

The Lord Chancellor did not refer to the right of a judgment creditor to interest under the Judgments Act , but presumably he did not consider that this would compensate for delay where there was no proof that the balance of the account would favour the plaintiff in equity. In Piggott v Williams the solicitor was presumably protected against delay by an entitlement to interest under his mortgage. The facts in Beasley v Darcy however demonstrate, if that is necessary, that relief in respect of an equitable set-off can be granted on terms.

In principle equitable set-off should be available for liquidated cross-demands which are not payable when proceedings are commenced, just as it is available for unliquidated cross-demands before they have been liquidated by verdict or judgment. Equitable relief may not be available in every case of this description, particularly if the cross-demands are not payable for a long time, and terms may be imposed. Equitable set-off may not be available in respect of a cross-demand acquired by the debtor after judgment against him. See Whyte v O'Brien [1824] EngR 258; (1824) 1 Sim & St 551 (57 ER 218) sed quaere.

CEL/Vision were insolvent and Roadshow would have suffered irreparable injury if its debts had been enforced independently of its cross-claims which would otherwise rank as unsecured in an insolvent administration. There was no suggestion that Roadshow was insolvent, and CEL/Vision were protected against delay by their prima facie entitlement, under s 94 of the Supreme Court Act, to pre-judgment interest from the date their causes of action accrued. The causes of action for Roadshow's liquidated claims did not accrue until 31 October 1994 and 31 January 1995, and until then there was no right to interest under s 94.

Prima facie the damages for loss of the cl 10.3 right are the present value as at 6 December 1993 of the right to receive $75,000 on 31 July 1994. The damages so assessed would carry a prima facie entitlement to pre-judgment interest from the accrual of the cause of action. Substantial justice would be done if a declaration were made that the appellant was entitled to damages of $75,000, together with interest under s 94 of the Supreme Court Act, from 31 July 1994.

The appellant should have its costs of the appeal. The respondents will recover judgment for a significant sum after allowance of the equitable set-offs upheld by this Court, but its claims were never in dispute. The dispute related to the equitable set-off, and on that issue the appellant has substantially succeeded. However, it failed in respect of its claim to a set-off for $213,000,499 in respect of stock returns, and as a result judgment will be entered against it for a significant sum. In these circumstances, there should be no order as to the costs of the trial in the Commercial Division.

In our opinion the following orders should be made:

(2) Set aside the judgment entered in the Commercial Division.

(3) In lieu thereof declare that the respondents are entitled to recover from the appellant the sum of $1,224,531.54, together with pre-judgment interest on the sums particularised on p34 of the reasons for judgment of the trial Judge (p1544 of the appeal book) after deducting the sums totalling $111,352 payable to the appellant for co-operative advertising and rebates as and when those sums became payable, such interest to be calculated on the nett amounts from the dates they became payable to the respondents until the date of final judgment.

(4) Declare that the appellant is entitled in equity to set-off the following amounts against its liability so declared:

(c) Damages for loss of the right to an additional distribution fee payable under cl 10.3 of the Distribution Agreement which accrued on 6 December 1993;

together with pre-judgment interest on such sums as from the dates the respective causes of action accrued to the date of final judgment.

(5) Declare that the damages referred to in para 4 (c) be assessed at $75,000 carrying pre-judgment interest from 31 July 1994 unless the respondents within 14 days elect by notice in writing to the solicitors for the appellant to have the proceedings remitted to the Commercial Division at their risk as to costs to have such damages assessed by that Division.

(6) In the event of the respondents electing to have the damages assessed by the Commercial Division, declare that the appellant is entitled to set-off the damages so assessed, together with pre-judgment interest thereon, from 6 December 1993.

(7) Judgment for the respondents for the balance due after allowing the set-off of such amounts.

(8) No order as to the costs of the proceedings in the Commercial Division to date.

(9) Proceedings remitted to the Commercial Division with liberty to apply for the entry of final judgment pursuant to these orders.

(10) The respondents to have a Certificate under the Suitors' Fund Act if qualified.